L&T MD explains why boycotting China items not feasible – The Financial Express

Clipped from: https://www.financialexpress.com

But if the country thinks from a long-term measure and looks at China as an enemy country, we got to put in place policies and processes so that over a period of time we could make this effective.

With the skirmish at the border with China, the ‘boycott China products’ sentiment is running high. The dangers of any rash move in this direction are well-known. SN Subrahmanyan, the CEO and managing director of the country’s largest engineering and construction firm, Larsen & Toubro, cautioned that to take a total view on boycotting Chinese goods is not feasible currently. During an interview with FE’s Shubhra Tandon, he also said private-sector capex will take another two years to return and getting migrant labourers back is a challenge. He further said L&T does not have any plans to undertake job or salary cuts. Edited excerpts:

How do you think the call of ‘boycott China’ will impact the capital goods sector?

One has to be realistic and practical whether it is possible. There are Chinese companies that have set up shops in India, Chinese goods are from many points of view efficient and cost-effective. So, to take a total view that we can boycott the Chinese goods is not feasible because we also have balance of trade, and trade is obviously inclined towards China. But if the country thinks from a long-term measure and looks at China as an enemy country, we got to put in place policies and processes so that over a period of time we could make this effective. Maybe in the next 4-5 years we can arrive at a solution towards it and start making in India, with the same efficiency and cost-effectiveness.

In case some import tariffs are levied on components and goods coming from China, what will be the impact in terms of supplies and prices?

It will affect because many of us have placed orders on some Chinese companies. If there is a sudden imposition of import tariff and then there is a sudden change in law, one will have to depend on the government for compensation on some of these issues. Secondly, we will have to find alternative sources of supplies and those can be costlier which will lead to some costs.

Given that government finances are so stretched and there’s uncertainty in policies, how sustainable is it to depend on government orders?

In the last few years, there is an over-dependence on the government for infrastructure and engineering orders for a fair amount of contracts. This is because the private sector in India which is very vibrant has over-stretched itself in terms of leveraging its debt, balance sheet and some of them have overestimated the kind of revenues that will come in. Therefore, there is a lot of turmoil. Having said that, we have to depend on the government side for orders, which has been the case. I think the situation is going to continue like this for some more time. If you look at the funding of these three sectors, central, state and public sector enterprises, it was in the region of Rs 7-8 lakh crore in the last few years. I think this year because of the various economic measures taken towards the social sector, the various financial measures that the government had to take, and some of the measures related to the pandemic, the spend is going to come down to Rs 4-5 lakh crore. This was always going to be the case, one needs to remain optimistic.

Uday Kotak, while taking over as the CII president, said the government has done enough and it is for the private sector to start investing even if it means to export. Do you agree?

One has to agree to that. In a country like ours, the government alone cannot do much of the investments and it has to be backed by private-sector investment. I also agree that the government has done what it can in terms of empowering the private sector from a liquidity, moratorium, NCLT deferment, from sustaining the MSME point of view. Many measures have been taken, including reduction in taxes and lowering interest rates etc. However, the entrepreneurial spirit has to come back. The investment spurt has to come back and that can only happen with demand coming back. For the big-ticket private investments to come back, you need a calmer atmosphere than what it is. My guess is it is going to take one-and-a-half to two years to get back.

What will bring back demand in your view?

An atmosphere has to be created where we restart major government projects, find new economic zones, like the government has been talking about huge solar electricity base in Ladakh, expansion of transmission line systems, the Bharatmala scheme, the river interlinking programme. If these projects can be funded through institutional or multilateral funding, low-cost long-tenor loans, then companies like L&T can bid for these. Also, when you win projects you employ people who are then paid and then they spend, which is what creates demand. Also, a lot of companies are in trouble because of the huge amounts stuck in litigation and arbitration. In my view Rs 1,50,000 crore is in arbitration and disputes at various courts. Also, many of the government contracts have back-handed payment clauses, something should be done to make the contracts front-ended so that money can be earned faster, and people can have more liquid cash flow with them.

Are clients asking for renegotiations of contracts?

It is a mixture, but predominantly it is inclined towards clients asking for some cost-saving ideas and speed up the jobs.

What is the update on labour situation?

Though 90% sites are working, we have only 40% of labour. We need about 2,30,000-2,40,000 labourers, we have hardly 1,20,000 labourers on sites. So, we need to get another 1,20,000-1,30,000 labourers. It will take another 45-60 days to get it all back. Very good productive labour has gone, and we need to woo them back. People are still worried about the pandemic, they are worried to get back to the three big cities of Mumbai, Delhi and Chennai.

What measures are you taking to get the labourers back?

At the moment we have used our many offices and sites to talk to the labourers. We are giving them incentives, we are telling about the good things experienced, we are also using a labour app to get in touch with them and send them messages to come back. In the next 30-45 days, we will have much of these people back. But it is still a challenge and let us not minimise it.

Any plans of downsizing or salary cuts?

There is no intention of doing any downsizing or any other methods. This is an 82-year-old organisation and it has got a brand and reputation. When things go wrong, you always go to the most trusted person. We are that trusted person. We are continuing with our usual yearly process of promotions etc. There are few measures being taken in the company which is natural and correct because cost has been incurred and no revenue has come in. I guess our staff and workmen understand it.

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